National Credit Union Administration (NCUA).
Request for comment.
In a voluntary effort to invite input from stakeholders, the NCUA Board (Board) is seeking comments on proposed changes to the Overhead Transfer Rate (OTR) methodology. The primary goal of the proposed changes are to reduce the complexity of the OTR methodology. The proposed changes would also reduce the resources needed to administer the OTR. This document provides a summary of and response to comments received on the current OTR methodology, and explains and solicits comments on the proposed changes to the OTR methodology.
Comments must be received on or before August 29, 2017 to ensure consideration.
You may submit comments by any one of the following methods (Please send comments by one method only):
•
•
•
•
•
Russell Moore or Julie Decker, Loss/Risk Analysis Officers, Office of Examination and Insurance, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314 or telephone: (703) 518–6383 or (703) 518–6384.
NCUA requested comments on the current OTR methodologies and processes through a notice in the
• Whether the OTR should continue to be determined using a formula-driven approach, or instead be set largely at the discretion of the Board;
• the definition NCUA uses for insurance-related activities;
• adjustments or changes to the current calculation; and
• alternate methodologies to arrive at an accurate and fair allocation of costs.
Within the 90-day comment period, NCUA received 40 comment letters on the OTR methodology. The commenters included federally insured state-chartered credit unions, national credit union trade organizations, state leagues, and state supervisory authorities. There were no comment letters received from federal credit unions. While there were only 40 comment letters, the comments addressed a broad range of complex issues. In addition to reviewing comments for input on the existing approach, NCUA staff explored options for the Board to consider for improving the OTR methodology. Many of the comment letters discussed the methodologies for both the OTR and the Operating Fee as well as other budget-related issues. This request for comments focuses specifically on the OTR methodology. Comments related to the Operating Fee methodology and other budget-related issues were referred to the appropriate office.
Based on the comments and NCUA's internal assessment, the Board is considering changes to the OTR methodology.
NCUA administers the Federal Credit Union Act (the Act), which is comprised of three Titles: Title I—General Provisions, Title II—Share Insurance, and Title III—Central Liquidity Facility. The agency's mission is to “provide, through regulation and supervision, a safe and sound credit union system, which promotes confidence in the national system of cooperative credit.”
NCUA is responsible for ensuring federally insured credit unions operate safely and soundly and comply with all applicable laws and regulations within NCUA's jurisdiction.
To achieve its statutory mission, the agency incurs various expenses, including those involved in examining and supervising federally insured credit unions. The Board adopts an Operating Budget each year to fund the vast majority of the costs of operating the agency.
In 1972, the Government Accountability Office recommended NCUA adopt a method for properly allocating Operating Budget costs—that is the portion to be funded by requisitions from the Share Insurance Fund and the portion to be covered by Operating Fees paid by federal credit unions.
NCUA has employed various allocation methods over the years, with the current methodology adopted in 2003. For a chronological summary of the history of the OTR, refer to
The Board detailed the legal parameters within which it must fund the NCUA Operating Budget in the January 2016 notice and request for comment.
NCUA charters, regulates and insures shares in federal credit unions and insures shares and deposits in federally insured state-chartered credit unions. To cover expenses related to its statutory mission, the Board adopts an Operating Budget in the fall of each year. The Act authorizes two primary sources to fund the Operating Budget: (1) Requisitions from the Share Insurance Fund “for such administrative and other expenses incurred in carrying out the purposes of
To allocate agency expenses between these two primary funding sources, NCUA uses the OTR. The OTR represents the formula NCUA uses to allocate insurance-related expenses to the Share Insurance Fund under Title II. Almost all other operating expenses are collected through annual Operating Fees paid by federal credit unions.
In response to its initial OTR notice, NCUA received a variety of comments related to the legal authority to requisition funds from the Share Insurance Fund to cover a portion of the Operating Budget. Several commenters stated the agency does not have authority or discretion to establish and determine the OTR. Some commenters asserted that NCUA lacks the legal authority to use the Share Insurance Fund to cover costs of operating the agency. Other commenters claimed NCUA has only very narrow authority to allocate costs, has too broadly interpreted its authority, and may assign to the Share Insurance Fund only those costs directly associated with share insurance payments for failed or troubled credit unions. Some commenters insisted NCUA is required to fund the vast majority of the cost of operating the agency through Operating Fees charged to federal credit unions, claiming Congress intended that Operating Fees were to subsidize costs in managing risk to the Share Insurance Fund. Having considered these comments, NCUA maintains that a plain reading of the Act, as described in section II.a. above and in the January 2016 notice, supports the agency's legal authority and broad discretion in allocating operating costs.
Various commenters disagreed with the agency's legal analysis and argued that some combination of 12 U.S.C. 1781(b)(1), 1782(a)(5), and 1790 also limit NCUA's requisition of funds from the Share Insurance Fund for the Operating Budget. Several commenters went further and argued that Title II's legislative history indicates the savings from NCUA's reliance on Title I and State Supervisory Authority examinations and reports should accrue to the benefit of the Share Insurance Fund. The Act's plain language does not require an analysis of the legislative history.
Multiple commenters stated that the plain language of the Act requires the Board to structure examinations and Call Reports originally required under Title I so they may be used for Title II share insurance purposes.
While the Board did not cite 12 U.S.C. 1790 as an additional limitation in its earlier notice, the Board agrees with commenters stating that this provision should inform NCUA's interpretation of Title II so that it consciously avoids discrimination against federally insured
As background, all federally insured credit unions are subject to the same requirements for funding the Share Insurance Fund. Specifically, § 1782(c)(1)(A)(i) requires that “[e]ach insured credit union shall pay to and maintain with the [Share Insurance Fund] a deposit in an amount equaling 1 per centum of the credit union's insured shares.” Section 1782(c)(2)(A) requires that “[e]ach insured credit union shall, at such times as the Board prescribes (but not more than twice in any calendar year), pay to the Fund a premium charge for insurance in an amount stated as a percentage of insured shares (which shall be the same for all insured credit unions).” Thus, in funding the Share Insurance Fund, federal credit unions and federally insured state-chartered credit unions are not treated any differently. Similarly, the requisitions from the Share Insurance Fund used to fund the insurance-related expenses of NCUA's Operating Budget under § 1783(a) do not distinguish between federal credit unions and federally insured state-chartered credit unions.
As for the OTR methodology and whether it complies with § 1790, the OTR methodology only considers the type of activity (
The Act clearly permits expenses related to insurance to be funded by the Share Insurance Fund regardless of charter. Specifically, 12 U.S.C. 1783(a) expressly allows expenses “incurred in carrying out the purposes of [Title II]” to be allocated to the Share Insurance Fund. The costs NCUA incurs in safeguarding the Share Insurance Fund relate to the risks in federal credit unions and federally insured state-chartered credit unions. The Act provides the Board with a number of specific authorities that relate to costs NCUA incurs in carrying out its obligations under Title II. For instance, Title II of the Act authorizes the Board “to appoint examiners who shall have the power, on its behalf, to examine any insured credit union . . . whenever in the judgment of the Board an examination is necessary to determine the condition of any such credit union for insurance purposes.”
• “Appoint such officers and employees as are not otherwise provided for in this chapter;”
• “employ experts and consultants or organizations thereof;”
• “prescribe the manner in which its general business may be conducted and the privileges granted to it by law may be exercised and enjoyed;”
• “exercise all powers specifically granted by the provisions of this subchapter and such incidental powers as shall be necessary to carry out the power so granted;”
• “make examinations of and require information and reports from insured credit unions, as provided in this subchapter.”
The Board concludes that these authorities taken together provide NCUA as insurer with broad discretion to impose regulations on and examine all insured credit unions. In addition, the cost of the agency activities associated with exercising these and other accompanying authorities can properly be considered costs of carrying out Title II of the Act.
Finally, a number of commenters argued that the OTR methodology and/or calculations either should or must go through full APA notice and comment rulemaking. The APA does not require notice and comment for the OTR methodology. The legal analysis of NCUA's Office of General Counsel on the applicability of the notice and comment provisions of the APA to the OTR methodology is summarized in the January 2016 OTR notice
The majority of commenters expressed support for NCUA's continued use of a formula to determine the OTR. The Board agrees NCUA should continue to use a formula to determine the OTR. Use of a well-designed and comprehensive formula represents a good faith effort to consider all of the agency's costs relative to how NCUA is carrying out its various responsibilities. A formula also helps ensure costs assigned to the OTR relate to agency activities to carry out Title II responsibilities. NCUA's goal in using a formula-driven OTR methodology is to provide a comprehensive, fair, and equitable allocation of costs within a framework that can be administered at a relatively low cost. Though it is formula driven, the Board can adjust the methodology at any time to ensure it continues to reflect the most equitable and suitable approach to allocating costs.
However, five commenters favored setting the OTR at a fixed 50 percent of
Ten commenters objected to the Board's delegation of the OTR calculation to NCUA staff. They argued that by doing so the Board abdicated its oversight and discretion over the OTR and that it will result in reduced transparency. During the November 29, 2015, Board meeting, the Board approved the delegation of authority to administer the Board approved OTR methodology to the Director of the Office of Examination and Insurance (E&I).
Delegating the ministerial application of the Board approved OTR methodology does not mean the Board has abdicated its oversight and discretion for the OTR. With limited exceptions not at play here, the Act permits the Board to “delegate to any officer or employee of the Administration such of its functions as it deems appropriate.”
The delegation has not resulted in a reduction in transparency. As was done prior to the delegation, each year staff submits a report to the Board on the results of the calculation and conducts a briefing at a public Board meeting. The materials supporting the OTR calculation and the result are provided as part of the public Board briefing and posted on the agency's Web site. The Board intends for this public reporting to continue. Further, the Board is committed to soliciting public input at least every three years on the OTR methodology, and any time a change to the methodology is considered.
Nine commenters stated that the current OTR methodology is not sufficiently transparent. NCUA has made various efforts over the years to be transparent with respect to the OTR, and recently published extensive information about the OTR. The setting of the OTR has been briefed and acted on each year at a public Board meeting. The associated Board Action Memorandums, which are public records, fully detailed the calculation and included supporting materials. The current methodology was extensively reviewed at a public Board meeting when adopted in 2003. All related materials have been made a matter of public record and posted on NCUA's Web site. Numerous analyses, independent evaluations, and other documents are available in public records and on NCUA's Web site. To improve transparency further, the agency organized and posted a variety of new and historical materials on its Web site in 2015.
NCUA's definition of insurance-related activities received the most comments. Of the 36 commenters on this topic, most disagree with the definition NCUA uses for insurance-related activities. Many commenters objected to equating “safety and soundness” with “insurance-related,” with some arguing that the charterer/prudential regulator cares about safety and soundness and it is therefore not the sole domain of the insurer. Commenters asserted the definition assumes that NCUA has no safety and soundness oversight in its role as regulator and charterer of federal credit unions. By doing so, commenters claim NCUA is shifting expenses that should fall under the operating fee paid by federal credit unions to the Share Insurance Fund.
NCUA recognizes the historical role of a charterer/prudential regulator involves enforcing laws and implementing public policy. Before the advent of federal deposit insurance, federal financial institution regulators were concerned with protecting the stability of the financial system by “regulating” it. Thus, financial institution examinations focused on ensuring (1) statutes and regulations were followed to protect consumers, and (2) institutions were viable to protect consumer deposits, preserve access to financial services, and safeguard the stability of the economy. Though not responsible for the financial liability that comes with the role of insurer, prudential regulators are concerned with potential threats to the viability of their financial institutions to protect consumers and their jurisdiction's economy. This focus on viability benefits the insurer, whose primary role is to protect depositors and the taxpayer and contribute to the stability of the financial system.
NCUA has a unique dual role in that it serves as both the regulator of federal credit unions and the insurer of all federally insured credit unions.
Given its multiple roles, NCUA appropriately allocates costs associated with activities connected to each role. Various provisions of the Act, as noted earlier, govern or inform this allocation. Thus, NCUA currently categorizes those activities designed to manage risk to the Share Insurance Fund as “insurance-related.” This includes activities designed to enforce regulations NCUA adopts to carry out the purpose of Title II (Share Insurance) as well as related examination and supervision activities.
Thus, NCUA currently allocates costs associated with regulating and examining the safety and soundness of insured institutions as insurance-related. Worthy of note, Congress uses “safety and soundness” and related terminology in the Act.
However, NCUA acknowledges that safety and soundness is not the sole domain of the insurer; prudential regulators have various responsibilities with respect to the “safety and soundness” of institutions they oversee. In some respects this is recognized in the current OTR formula through the “Imputed SSA Value.” To better reflect that the prudential regulator and insurer both have responsibilities for safety and soundness, the Board is considering adjusting the OTR methodology so safety and soundness is not accounted for as the primary domain of the insurer. For more information on the proposed change to the OTR methodology, see section IV.
One commenter stated that routine examinations of all insured credit unions should be paid through Operating Fees. Another commenter asserted that the OTR should only be used for examinations of federally insured state-chartered credit unions and examinations of troubled federal credit unions. These recommendations assume that as insurer, NCUA takes only a reactive approach to managing risk to the Share Insurance Fund.
The Board notes that NCUA's role as insurer is best fulfilled by a proactive approach to preventing losses, not just addressing troubled or failed institutions. Since the implementation of federal share insurance in 1970, the Board has instituted a more proactive examination and supervision program geared toward safety and soundness to better manage risk to the Share Insurance Fund. Additionally, as credit unions have become larger and more complex, the risks to the Share Insurance Fund have changed, with NCUA making corresponding adaptions to its operations. In 2002, the Board strengthened its commitment to fulfilling NCUA's role as insurer by implementing the Risk-Focused Examination Program. As recently as 2016, the Board made the examination program even more risk-based by adopting an extended examination cycle for healthy, well-run credit unions. These programs base examination scope and timing largely on the risks an institution poses to the Share Insurance Fund. Further, the objective of the risk-focused examination is to enable NCUA to identify and address risks before they become a major problem. All of these changes have resulted in an increase in the agency's insurance-related activities.
The Act and NCUA Regulations have also evolved, resulting in more emphasis on safeguarding the Share Insurance Fund. For example:
1. The Credit Union Membership Access Act was enacted into law in 1998.
2. During the aftermath of the financial crisis, the Board strengthened critical safety and soundness rules, such as interest rate risk and liquidity management standards.
3. NCUA also has been providing regulatory relief. New authorities and less prescriptive, more principles-based rules have helped to reduce compliance burdens and provide credit unions with more authority to serve members and manage risk. They result in examiners devoting more time to ensuring safety and soundness through the examination process rather than relying on regulatory limits.
Under this proactive approach, the Board's primary motivation for many of the agency's current regulations and the majority of the examination program is to manage risk to the Share Insurance Fund.
The Board acknowledges there is not always a clear separation between the role of a prudential regulator concerned with enforcing laws and implementing public policy and that of an insurer. For example, NCUA relies, to the extent feasible, on the examination work performed by state regulators to manage risk to the Share Insurance Fund posed by federally insured state-chartered credit unions. This results in some cost savings in the NCUA Operating Budget. Since 2004, the value of the insurance-related work conducted by state regulators and relied on by NCUA has been reflected in the OTR methodology as the “Imputed SSA Value.” To ensure equitable treatment, the Imputed SSA Value is calculated on the same cost basis as if NCUA had to conduct the work itself.
The Board recognizes that another plausible approach to accounting for the related missions of charterer/prudential regulator and insurer is to employ an alternating or partnership framework within the OTR methodology. This would simplify the OTR methodology and avoid having to delineate safety and soundness as the primary domain of the insurer. The concept of an alternating or partnership framework being applied to the OTR methodology is described in detail in section IV of this document.
Some commenters asserted that because NCUA equates safety and soundness with insurance-related activities, the OTR methodology is not fair and equitable as state regulators also examine federally insured state-chartered credit unions for safety and soundness. As a result, some commenters contended federally insured state-chartered credit unions are charged twice for safety and soundness examinations; once by their state regulator via an operating fee and then by NCUA via the OTR. Further, some commenters claimed that federally insured state-chartered credit unions are disadvantaged when the OTR rises due to increased NCUA examination time allocated to insurance, because the NCUA operating fee paid by federal credit unions declines.
NCUA appreciates the work state regulators do in contributing to the safety and soundness of the credit union system. The agency will continue to partner and coordinate closely with state regulators in this regard. It is important to note that ultimately NCUA is accountable for carrying out the purpose of Title II of the Act and managing risk to the Share Insurance Fund. The extent state regulators examine for safety and soundness is the choice of state governments. This choice, along with the adequacy of the examination, affects the extent to which it is feasible for NCUA to rely on these examination reports to meet its Title II responsibilities. State governments also choose the extent to which they rely on the work of NCUA in its role as insurer to reduce overall state costs and burden.
State-chartered credit unions are not charged twice as a result of state regulators also examining for safety and soundness. The extent to which state regulators examine for safety and soundness in a manner that can be relied on by NCUA reduces the overall agency costs to which the OTR is applied, benefiting all insured credit unions. Conversely, NCUA's involvement in developing reporting and examination systems for all insured credit unions, publishing guidance, training and equipping most state examiners, and participating in the examination of federally insured state-chartered credit unions reduces overall state regulator costs.
Some commenters suggested that if the OTR continued to define all safety and soundness activities as insurance-related, NCUA should use each state regulator's actual costs instead of an imputed value. Others argued NCUA should pay the state governments for their actual costs instead of merely reducing the OTR.
NCUA notes that it is neither feasible nor appropriate to use the actual state regulator costs in determining the OTR. To ensure the methodology is fair and equitable across all federally insured institutions, the Imputed SSA Value is intentionally designed to reflect the replacement cost to NCUA if the agency had to do the insurance-related work it relies on the state regulators to conduct. The cost structure for state regulators can vary widely and include non-germane and potentially inordinate costs. Also, it is not feasible to obtain reliable and comprehensive information
As part of the process of evaluating the suggestion to use actual state regulator costs, NCUA attempted to obtain and review the costs of state regulators and their methodologies for annual and/or examination fees for state-chartered credit unions. This included determining how costs are allocated to the credit union specific activities for state regulators housed within state offices with broader responsibilities.
Based on Call Report data, NCUA did compare the total Operating Fees as a percent of average assets paid by federal credit unions to those reported by federally insured state-chartered credit unions. Though this comparison has some limitations, the trends in Graph 1 below show that Operating Fees recorded by federal credit unions and federally insured state-chartered credit unions are comparable in aggregate.
Further, federal credit unions continue to bear the majority of NCUA's operating costs. For NCUA's 2017 Operating Budget, federal credit unions cover 67 percent of the total Operating Budget through the operating fee and their proportional share of the OTR.
NCUA has mapped all examination-related rules and regulations to one of two categories: Insurance regulatory related, or non-insurance and consumer regulatory related. A third party has reviewed the regulatory mapping.
Since NCUA equates safety and soundness with the term insurance-related in the current OTR methodology, commenters argued that the mapping of NCUA's rules and regulations is faulty. Some commenters asserted that classifying NCUA rules as insurance-related is flawed because NCUA as charterer/prudential regulator is charged with ensuring compliance with all the provisions contained within the rules and regulations.
As noted in the Legal Analysis section above, the Board has the authority to promulgate rules and regulations to carry out the provisions of Title II (Share Insurance) of the Act, as well as examine credit unions for share insurance purposes.
As noted above, the Board recognizes that another plausible approach to accounting for the related missions of charterer/prudential regulator and insurer is to employ an alternating or partnership framework within the OTR methodology. This would simplify the OTR methodology in part by avoiding having to map regulations to a specific role as it relates to federal credit unions. The concept of an alternating or partnership framework being applied to
NCUA received 23 comments suggesting various other changes to the current OTR process. The areas of the calculation receiving comments were the examiner time survey, the allocation factors for various NCUA central offices, and the use of insured shares in the calculation.
• Examiner time survey:
It is not necessary to have 100 percent coverage of all examination and supervision contacts to form a statistically valid basis for the survey. A complete census of all federal credit union examinations and supervision contacts would result in additional agency costs—all staff would have to be trained annually and all examinations and supervision contact hours would need to be increased for the time necessary to complete the survey.
• Allocation factors for various NCUA central offices: Some commenters stated the allocation of costs for NCUA's non-field offices are not based on standard or consistent criteria. Overall, NCUA agrees that improvements can be made in allocation methods involving the non-field cost centers, and is addressing this in the proposed changes to the OTR methodology. Some noted that the Office of National Examinations and Supervision (ONES) costs cannot be 100 percent safety and soundness as it examines natural person credit unions with assets over $10 billion and, therefore, has regulatory responsibility. Other commenters noted ONES is also responsible for reviewing Bank Secrecy Act compliance for the corporate credit unions it supervises, suggesting some non-insurance time is spent supervising them. NCUA agrees that ONES time is not 100 percent insurance related and this issue was addressed in the 2017 OTR calculation. Other commenters questioned why the Office of Small Credit Union Initiatives and the Office of Consumer Financial Protection and Access vary in their methodology for classifying time spent on field of membership expansion. NCUA agrees that there are differences in the time allocations and has developed a consistent standard for use in the proposed changes to the OTR methodology discussed in section IV.
•
The proposed simplification of the OTR formula is intended to facilitate greater understanding of the methodology, and will decrease the agency resources necessary to administer the OTR. The new approach is within NCUA's authority and, though simplified, would provide a sufficient level of precision with respect to the allocation of agency costs. The simplified formula applies the following underlying principles to the allocation of agency operating costs:
1. Time spent examining and supervising federal credit unions is allocated as 50 percent insurance related. The 50 percent allocation mathematically emulates an examination and supervision program design where NCUA would alternate examinations, and/or conduct joint examinations, between its insurance function and its prudential regulator function if they were separate units within NCUA. It reflects an equal sharing of supervisory responsibilities between NCUA's dual roles as charterer/prudential regulator and insurer given both roles have a vested interest in the safety and soundness of federal credit unions.
2. All time and costs NCUA spends supervising or evaluating the risks posed by federally insured state-chartered credit unions or other entities NCUA does not charter or regulate (for example, third-party vendors and CUSOs) is allocated as 100 percent insurance related. NCUA does not charter state-chartered credit unions nor
3. Time and costs related to NCUA's role as charterer and enforcer of consumer protection and other non-insurance based laws governing the operation of credit unions (like field of membership requirements) are allocated as 0 percent insurance related.
4. Time and costs related to NCUA's role in administering federal share insurance and the Share Insurance Fund are allocated as 100 percent insurance related. NCUA conducts liquidations of credit unions, insured share payouts, and other resolution activities in its role as insurer. Also, activities related to share insurance, such as answering consumer inquiries about insurance coverage, are a function of NCUA's role as insurer.
These four principles are applied to the activities and costs of the agency to arrive at the portion of the agency's Operating Budget to be charged to the Share Insurance Fund as discussed in detail below.
Annually, NCUA develops a workload budget based on NCUA's examination and supervision program to carry out the agency's core mission. The workload budget reflects the amount of time necessary to examine and supervise federally insured credit unions, along with other related activities, and therefore the level of field staff needed to implement the exam program. Applying principles 1, 2, and 3 (those relevant to the workload budget) to the applicable elements of the workload budget results in a composite rate that reflects the portion of the agency's overall mission program activities that are insurance related. For illustrative purposes, Table 1 shows the application of the allocation principles to the 2017 workload budget.
The Operating Budget represents the costs of the activities associated with achieving the strategic goals and objectives set forth in the NCUA Strategic Plan. The Operating Budget is based on agency priorities and initiatives that drive resulting resource needs and allocations. Information related to NCUA's budget process, including detailed information on the Board-approved 2017 Operating Budget, is available on the agency's Web site.
The agency achieves its primary mission through the examination and supervision program. For the proposed formula, as applied to the 2017 Operating Budget, the percentage of insurance-related workload hours (61 percent) derived from Step 1 represents the main allocation factor used in Step 2 for the costs of the field offices (the Regions and ONES). A few agency offices have roles that are significantly distinct enough to warrant their own allocation factors, as discussed below. A weighted average allocation factor (60 percent) representing the aggregate budgets for the Regions, Ones, and the specific agency offices listed in Step 2 is applied to the central offices that design or oversee the examination and supervision program, or support the agency's overall operations. These costs in total make up NCUA's Operating Budget. Table 2 reflects the application
The financial budget for the agency's five regional offices and ONES is allocated based on the weighted average of non-insurance and insurance-related activities calculated in Step 1. The Regions and ONES execute NCUA's examination programs; thus, the budgeted costs related to these offices should receive the same allocation basis as the programs themselves. The allocation factor is based on principles 1, 2, and 3 as documented in Table 1. The budget for the regional offices and ONES is allocated at 61.0 percent for insurance-related activities.
NCUA conducts credit union liquidations and performs management and recovery of assets through the Asset Management and Assistance Center. The Asset Management Assistance Center assists NCUA regional offices with the review of large, complex loan portfolios and actual or potential bond claims. It also participates extensively in the operational phases of conservatorships and records reconstruction. The purpose of the Asset Management Assistance Center is to manage and reduce costs to the Share Insurance Fund and credit union members of credit union failures. Thus, OTR allocation is based on principle 4 at 100 percent insurance related.
This division is responsible for NCUA's consumer financial literacy efforts, consumer inquiries and complaints, consumer protection compliance and rulemaking, fair lending examinations, interagency coordination and outreach, chartering and field-of-membership matters, low-income designations, charter conversions, and bylaw amendments. The majority of the work performed by the Office of Consumer Financial Protection and Access is related to NCUA's role as prudential regulator and
The composite rate of this office's insurance-related activities calculates as 13 percent as reflected in Table 3. Thus, an allocation factor of 13 percent is applied to the office's financial budget in the OTR calculation.
The office's administrative staff provides support for the whole office. Ten percent of this unit's work was devoted to supporting insurance-related functions, like responding to consumer inquiries on share insurance coverage. Thus, principle 4 is applied to those activities as 100 percent insurance related while the remaining 90 percent of their time was spent supporting charting, bylaw, field of membership, and related activities, which fall under principle 3 as 0 percent insurance related.
The Division of Consumer Access staff spent 25 percent of their time addressing insurance-related functions, like insurability standards for mergers and insurance applicants where principle 4 applies. The remainder of this unit's time was spent processing various chartering and field of membership expansion applications and bylaw matters where principle 3 applies.
The Division of Consumer Affairs staff spent 5 percent of its time addressing share insurance questions received from consumers which falls under principle 4. The division spent the remaining 95 percent of its time on consumer related activities like administering the Financial Literacy Program, which falls under principle 3.
The Division of Consumer Compliance Policy and Outreach focuses on issues related to consumer regulations including implementing the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, the Truth in Lending Act, and the Real Estate Settlement Procedures Act. All of these activities fall under principle 3; therefore, 100 percent of the division's staff time is allocated as 0 percent insurance related.
The proposed methodology allocates the cost of the Office of Small Credit Union Initiatives based on principles 1 and 2. The office tracks the time the Economic Development Specialists spent consulting and training both federal credit unions and federally insured state-charted credit unions. The proportion of time spent on federal credit unions is allocated based on principle 1 while federally insured state-chartered credit union work is allocated based on principle 2. Other office personnel process grants and loans for both federal credit unions and federally insured state-chartered credit unions. Grant and loan activities are allocated the same way as the consulting and training time using principles 1 and 2. The resulting allocation factor for the Office of Small Credit Union Initiatives is 60 percent as shown in Tables 4 and 5.
Table 4 illustrates the allocation for the Office of Small Credit Union Initiative's consulting hours between federal and state-chartered credit unions applied to the budgeted hours for 2017. Principle 1 is applied for federal charters and principle 2 is applied for state charters. The result is a composite rate of 59.3 percent insurance-related hours for the Economic Development Specialists.
Table 5 illustrates the allocation of the grant and loan activities performed by the Office of Small Credit Union Initiatives by charter type. Principle 1 is applied for federal charters and principle 2 is applied for state charters. This results in a composite rate of 63.7 percent insurance-related activities for grants and loans.
Table 6 shows the resulting overall composite rate of 59.8 percent insurance-related activities for the Office of Small Credit Union Initiatives. This factor is applied to the financial budget for this office in the OTR calculation.
NCUA's remaining offices design or oversee the agency's mission and its related offices, or provide necessary support to mission offices or the entire agency. As such, the proportion of insurance-related activities for these offices corresponds to that of the mission offices. It would be administratively burdensome to attempt to account for any variation in activity levels from the mission functions, and would not result in a material difference in outcomes. Therefore, these office costs are allocated based on the weighted average of insurance-related activities calculated in the subtotal of agency costs for the offices above that have a distinct allocation factor. The budgeted costs for the following offices are allocated at 60.0 percent insurance-related activities for purposes of calculating the OTR:
• NCUA Board,
• Executive Director,
• General Counsel,
• Chief Financial Officer,
• Chief Information Officer,
• Chief Economist,
• Human Resources,
• Examination and Insurance,
• Inspector General,
• Minority and Women Inclusion,
• Public and Congressional Affairs, and
• Continuity and Security Management.
The OTR represents the percentage of the NCUA Operating Budget that is funded by a transfer from the Share Insurance Fund.
Based on data used to determine the OTR for 2017, the proposed changes to the OTR methodology would result in an OTR of 60.0 percent. The current methodology resulted in an OTR of 67.7 percent for 2017. Table 8 summarizes the results for the 2017 OTR calculation using the current and proposed methodologies.
For
The
In addition to the proposed changes to the OTR methodology, the Board proposes to formally adopt the following OTR related processes:
• To solicit through the
• Maintain the staff delegation to administer the OTR methodology but require public board briefings every year, no later than each December, on the results of the calculation and to post all related materials to NCUA's Web site.
• As part of future rulemaking, indicate for any proposed regulation involving the activities and authorities of credit unions whether the regulation is based on Title I, Title II, and/or Title III of the Act and seek comment on this determination. While the proposed new OTR methodology would no longer rely on mapping of regulations, this will increase clarity regarding the purpose of and authority for any new or updated regulations and preserve future flexibility with respect to any desired changes to the OTR methodology.
The Board seeks comments on all the proposed revisions to the OTR methodology and formal adoption of the procedures discussed above. In particular, the Board is interested in comments on alternative approaches to arriving at an allocation factor for the cost of examining and supervising federal credit unions (principle 1). For example, within the context of the overall simplification of the OTR methodology, should federal credit union examination and supervision activity be allocated primarily to the operating fee, or should it continue to reflect that much of NCUA's examination and supervision focus is on managing risk to the Share Insurance Fund.
Commenters are also encouraged to discuss any other relevant issues they believe NCUA should consider with respect to the OTR methodology and, to the extent feasible, provide documentation to support any recommendations.